February 20, 2008

After a longer break than I expected, we come to the end of our series. We have looked at how the VC process works and I have tried to give some idea of what goes through the heads of those guys sitting across the conference table from you when you make your pitch. I’d like to close with a couple of tips and comments:

Patience please - One of the biggest complaints we VC types hear from entrepreneurs concerns the pace at which things move in our world, especially compared to processes with angels. Yes, it does sometimes seem that we lumber along at the pace of asthmatic dinosaurs. But as I’ve attempted to show, the pace is often dictated by the process and the need to assure our investors that we’re not just plunking down their money at the racetrack. You have our apologies for this, but we do ask for a little patience.

Perseverance – A well known joke says that the hardest answer to get from a VC is “yes”; the second hardest answer is “no”. Oh, how we are infamous for never giving straight-up “no”s. Instead, it’s usually a “not now”. Not now because we don’t think the concept is fully enough developed, or we want to see what kind of uptake it will have, or because the team doesn’t seem strong enough.

While this is understandably frustrating to entrepreneurs, you should also look at the other side of the equation: We understand that things change very quickly in this business. Subsequently, we try to maintain ongoing contact with companies that we have passed on in the past as their situation changes.

Just to give one example, we had a company come in early last year with a concept for an internet site. The idea didn’t seem fully baked, so we gave them a bit of constructive criticism and parted ways. Two months later they contacted us again. They had changed their model and suddenly they seemed a lot more interesting. We ended up giving them a seed investment.

Moral of the story: even if we tell you “no”, don’t walk away mad. Update us when you have significant developments – you launch your product, you start getting users, you add people to your team. You’d be surprised how often that makes the difference.

The ideal entrepreneur – Lots of startup-ists wonder what we look for in an entrepreneur. Personally, I am most impressed by people who know their stuff: they have a strong handle on the technology and the market, and can stand up to a barrage of difficult questions while maintaining a cool head. That plus real passion and devotion to the idea is the mark of a winner, IMHO.

Help keep us honest – As I’ve mentioned more than once in this series, entrepreneurs have a lot of complaints regarding us money types. Some of these complaints are justified, others less so. You can find numerous forums and sites on the Web to compare notes on VCs. The most prominent (and infamous) of these is probably The Funded, where entrepreneurs gather to bitch about VCs and VCs gather to wring their hands about their image.

I invite everyone to visit the site and contribute, as it helps keep us honest and improve our service. I do have one request: be fair. The fact that we didn’t get back to you with an answer (a really bad and common VC trait) is legitimate cause for complaining. The fact that we didn’t like your idea, however, doesn’t necessarily mean that we’re idiots.

So, why VC? – At the end of the day, a lot of entrepreneurs will be tempted to ask, “Why should we bother with you guys?” In other words, why put themselves through a long and unpleasant investment process with a VC fund instead of just going to angels. If you are a software or semiconductor company, the answer is obvious: we’ve got deeper pockets than most angels.

But I’ll put the banal answer aside for a second in order to make this point: In many cases, we are learning how to act like angels. Giza’s seed-stage “Ofek” program is a good case in point. We have learned how to make relatively small, initial investments, and to do so relatively quickly. Often we invest with groups of angels.

This kind of model can be found in almost all the funds here and is often used for companies in the Internet space. For the entrepreneur it gives the best of both worlds.

And so it goes. I hope this series has helped open up a bit of dialog with entrepreneurs and I encourage everyone to contact me with their ideas and complaints.